Entries Posted in UPS

If you’re a shipper, you may have noticed your fuel surcharge fees aren’t going down in step with the declining price of oil. That’s because both FedEx and UPS tie their fuel surcharges to the price of diesel, which hasn’t dropped as far or as fast as gasoline prices. Furthermore, both shipping giants recently adjusted how they calculate fuel surcharges, resulting in surcharges that won’t drop as much as they would have under the previous calculation. In some cases, fuel surcharges are even going up.

Fuel surcharges are common in the transport industry, from taxis and airlines to moving and delivery companies. Many of these industries instituted fuel surcharges to smooth out costs when fuel prices were skyrocketing. But in times of low fuel prices, like now, customers see these surcharges as a blatant money-grab.

Right about now, you may be noting the U.S. Postal Service doesn’t have a fuel surcharge. It also didn’t go all in on dimensional weight pricing (See our previous blog). And it’s not likely to chase the next big thing in pricing: “surge” or “peak” pricing. For the 2015 holiday season, UPS said it plans to follow the Uber model and hit shippers with “peak” prices on its busiest days. This comes after UPS said it experienced higher-than-anticipated 2014 peak season expenses. FedEx is expected to follow suit. For consumers, this could mean the end of free shipping, at least on last-minute orders around the holidays.

So, the Postal Service might look even more attractive these days with its relatively straightforward, consistent pricing. Of course, the Postal Service isn’t a public company, so it’s not under the same pressure to deliver profits as UPS and FedEx are. But customers are not too interested in the whys and wherefores – they just want low-priced, reliable, fast delivery.

Do you think the Postal Service is well-positioned to lure away commercial package business from FedEx and UPS? Does the lack of a fuel surcharge put the Postal Service at any kind of a competitive disadvantage? Or is it only advantageous? Do you see the Uber surge or peak pricing model getting a foothold in other industries?

For the major express companies, preparation for the next holiday season started right after the last one ended. If you’re one of the many Americans whose packages arrived after Santa did last year, you are undoubtedly glad to hear this. In 2013, an unexpected surge in online orders, combined with winter storms and sparse airplane capacity, resulted in FedEx and UPS missing deliveries for Christmas.

While online retailers certainly share some of the blame – they promised more than was reasonable – UPS and FedEx are investing heavily this year to avoid a repeat of last year. For the first time, UPS will operate a full domestic air and ground network on the day after Thanksgiving (not just its air network). It’s also adding 95,000 seasonal workers and 6,000 package delivery cars, plus increasing its available aircraft. FedEx recently announced a sharp increase in its number of seasonal workers.

Retailers are also making some changes, including in-store pick-up options and better “distributive fulfillment” efforts, which lets them ship from their brick-and-mortar stores rather than distribution centers. These offerings reduce the distances packages travel.

The U.S. Postal Service came out of last year’s holiday season smelling sweet. A Business Week article called the Postal Service’s performance stellar, noting that it made adjustments throughout December – including adding deliveries on three Sundays in the month – to accommodate package surges. Of course, the Postal Service doesn’t operate its own fleet of airplanes like UPS and FedEx. So it’s not necessarily the carrier of choice for overnight deliveries.

Still, many pundits believe the Postal Service could win some new customers this holiday season due to its strong performance last year. The Postmaster General recently told USA Today the Postal Service expects an 8 percent increase in packages over last year. Further, the Postal Service’s recent lowering of commercial Priority Mail prices may have already convinced some companies to switch. However, unpredictable weather close to Christmas and increased volume could pose challenges similar to last year. Would a less-than-stellar holiday performance from the Postal Service hurt its potential in the coveted commercial package market? How can the Postal Service prepare for these potential challenges? Will the changes retailers are making help?

No one can accuse the U.S. Postal Service of following the pack. It not only dismissed the strategy of pricing packages based on size as well as weight (referred to as dim weight pricing); it actually plans to lower prices for a good portion of its flagship Priority Mail products.

Few were surprised when UPS recently followed rival FedEx’s lead and announced it would price parcels based primarily on how much space they take up during transport. The new pricing scheme is expected to generate significant revenue for the two integrators. Industry observers were curious to see if the Postal Service would jump on the dim weight bandwagon, or if the agency saw a better opportunity in trying to poach customers with its simpler pricing scheme. Few predicted the Postal Service would lower prices.

Not all Priority Mail prices are going down, however. Retail prices on Priority Mail flat-rate boxes will in fact increase by 1.7 percent on average, if the Postal Regulatory Commission approves the Postal Service plan. For example, the small flat-rate box would increase 35 cents to $5.95 on September 7, if approved.

Still, small mailers could save by printing their own labels either from the Postal Service’s Click-N-Ship online offering, or from PC Postage products, permit imprints, or digital mailing systems. Using an online option moves customers into Commercial Base pricing, where they will get lower prices, on average, under the Postal Service proposal. The biggest price cuts – about 2.3 percent on average – would come in Commercial Plus prices, which require a commitment of 50,000 pieces in a year.

The Postal Service’s Priority Mail has seen solid growth over the past 3 years (25 percent in revenue). But postal officials have indicated they want to capture more business shippers and this price cut is one initiative meant to attract those commercial customers. Some observers think that, even without the proposed price break, the Postal Service would have won customers from UPS and FedEx once their prices increased. But others suggest the reduced rates might entice even more business customers to try the Postal Service.

Should the Postal Service lower its Priority Mail prices, keep them the same, or raise them slightly given an expected migration from UPS and FedEx?

I appreciate that Uber has disrupted the taxi industry and injected some much-needed competition into it, which only benefits consumers. But the move to the Uber model of surge pricing in other industries is disappointing. Consumers are already...

Until gas gets back to where it was on Jan 20th, 2009 ($1.80 nation wide per gallon). There will be no love.We have the potential to do it, we don't have the administration that wants fossil fuel, period, so they want the cost to be high. POTUS...